A PRACTICAL GUIDE TO THE NEW AND REVISED INDONESIAN FINANCIAL ACCOUNTING STANDARDS FOR 2019 - JUNE 2019 - PWC
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A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 June 2019
Table of Contents
Introduction ................................................................................................................................ 3
New Interpretations .................................................................................................................... 4
ISAK 33 Foreign Currency Transactions and Advance Consideration ............................... 4
ISAK 34 Uncertainty over Income Tax Treatments ............................................................. 6
Amended standards ................................................................................................................... 8
PSAK 24 Employee Benefits - Plan amendment, curtailment or settlement ....................... 8
Annual Improvements 2018 ....................................................................................................... 9
Appendix – Forthcoming Requirements .................................................................................. 10
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 |Introduction This publication is a practical guide to the new, revised and amended Indonesian Financial Accounting Standards (“IFAS”), which come into effect in 2019. This gives an overview of the impact of the changes, which may be significant for some entities, helping companies understand if they will be affected and to begin their considerations. It will help entities plan more effectively by flagging up where new processes and systems or more guidance may be needed. In order to further align IFAS with the International Financial Reporting Standards (“IFRS”), the Indonesian Financial Accounting Standards Board (“DSAK-IAI”) has issued two new interpretations - ISAK 33, ‘Foreign Currency Transactions and Advance Consideration’ and ISAK 34, ‘Uncertainty over Income Tax Treatments’. These are the adoption of their respective IFRIC equivalents - IFRIC 22, ’Foreign Currency Transactions and Advance Consideration’ and IFRIC 23, ‘Uncertainty over Income Tax Treatments’. Apart from the adoption of the new IFRIC interpretations, DSAK-IAI has also revised several existing accounting standards through amendments and annual improvement projects. Accordingly, DSAK-IAI published the amendments to PSAK 24, ‘Employee benefits’, which relate to accounting for changes in the terms or the membership of a defined benefit plan. DSAK-IAI also issued several revisions and clarifications to existing standards through annual improvements. These are minor amendments affecting PSAK 22, ‘Business Combinations’, PSAK 26, ‘Borrowing Costs’, PSAK 46, ‘Income Taxes’ and PSAK 66, ‘Joint Arrangements’. The adoption of the above amendment to PSAK 24 and annual improvements is a part of the overall IFRS convergence project. As a result, by 2019 IFAS will be substantially converged with the IFRS issued by the International Accounting Standards Board (“IASB”) up to 2018. Included in this practical guide is our brief guidance on forthcoming requirements (see Appendix A). In addition to the most discussed three major new accounting standards (PSAK 71 ‘Financial Instruments’, PSAK 72 ‘Revenue from Contracts with Customers’ and PSAK 73 ‘Leases’), which apply to annual periods beginning on or after 1 January 2020, DSAK-IAI has issued several new standards and amendments, which will become effective in 2020 and 2021. Apart from the guidance published by DSAK-IAI, the Syariah Accounting Standards Boards (“DSAS-IAI”) has issued a new accounting standard - PSAK 112, ‘Wakaf Accounting’ (or ‘Accounting for Endowments’), which regulates the accounting for donations from the perspective of corporate donors and corporate recipients. This standard will be effective for financial years beginning on or after 1 January 2021. Lastly, it is worth noting that a major change is expected in the insurance contract accounting. In May 2017, IASB issued IFRS 17, ‘Insurance Contracts’, which includes some fundamental differences to current practices adopted by insurers and will apply retrospectively. DSAK-IAI is presently in the process of adopting IFRS 17 in Indonesia through PSAK 74, ‘Insurance Contracts’. We will keep you updated! A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 3
New Interpretations
ISAK 33 Foreign Currency Transactions and Advance Consideration
Early adoption is permitted
Transition provision: retrospective or prospective
Issues this case, the amount of revenue is the same as
the amount of the non-monetary contract liability
This interpretation considers how to determine the date
derecognised.
of the transaction when applying the standard on
foreign currency transactions, PSAK 10. The
Multiple receipts/payments
Interpretation applies where an entity either pays or
receives consideration in advance for foreign currency- The Interpretation states that, if there are multiple
denominated contracts. payments or receipts in advance of recognising the
related item, the entity should determine the date of the
The date of the transaction determines the exchange
transaction for each payment or receipt.
rate to be used on initial recognition of the related
The illustrative examples accompanying the
asset, expense or income. The issue arises because
Interpretation provide guidance on multiple
PSAK 10 requires an entity to use the exchange rate at
receipts/payments when:
the ‘date of the transaction’, which is defined as the
revenue is recognised at a single point in time;
date when the transaction first qualifies for recognition.
The question therefore is whether the date of the services are purchased over a period of time; and
transaction is the date when the asset, expense or revenue is recognised at multiple points in time.
income is initially recognised, or the earlier date on
which the advance consideration is paid or received, Example – Revenue recognised at a single point in
resulting in recognition of a prepayment or deferred time with multiple payments
income. Supplier enters into a contract with a customer on 1
The Interpretation provides guidance for when a single January 20x1 to deliver goods in exchange for total
payment/receipt is made, as well as for situations consideration of CU50 and receives an upfront
where multiple payments/receipts are made. The payment of CU20 on this date. The goods are delivered
guidance aims to reduce diversity in practice. and revenue is recognised on 31 March 20x1. CU30 is
received on 1 April 20x1 in full and final settlement of
the purchase consideration.
Key provisions
Single payment/receipt The Interpretation requires that:
Supplier will recognise a non-monetary contract
The Interpretation states that the date of the
liability, translating CU20 at the exchange rate on
transaction, for the purpose of determining the
1 January 20x1.
exchange rate to use on initial recognition of the related
Supplier will recognise revenue at 31 March 20x1
item, should be the date on which an entity initially
(that is, the date on which it transfers the goods to
recognises the non-monetary asset or liability arising
the customer).
from the advance consideration.
On 31 March 20x1, Supplier will:
Example – Single upfront payment ‒ derecognise the non-monetary contract
Supplier enters into a contract with a customer on 1 liability of CU20 and recognise CU20 of
January 20x1 and receives the full consideration of revenue using the same exchange rate (that
CU50 on this date. The goods are delivered and is, the exchange rate at 1 January 20x1); and
revenue is recognised on 31 March 20x1. ‒ recognise revenue and a receivable for the
The Interpretation requires that: remaining CU30, using the exchange rate on
31 March 20x1.
Supplier will recognise a non-monetary contract
liability, translating CU50 at the exchange rate on The receivable of CU30 is a monetary item, so it
1 January 20x1. should be translated using the closing rate until the
Supplier will recognise revenue at 31 March 20x1 receivable is settled.
(that is, the date on which the goods are
transferred to the customer). Supplier will Impact
derecognise the non-monetary contract liability. This Interpretation will impact all entities that enter into
Revenue will be recognised at the same amount in foreign currency transactions for which consideration is
functional currency, using the exchange rate at the paid or received in advance. The most significant
date of the transaction, which is 1 January 20x1. In impact is expected for entities that enter into long-term
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 4cross border/foreign currency contracts, with significant application is permitted. Entities can choose to apply
upfront payments. Such arrangements are common in the Interpretation:
the construction industry and will impact both the retrospectively for each period presented;
supplier and their customers (for example, shipping and prospectively to items in scope that are initially
airlines). recognised on or after the beginning of the
reporting period in which the Interpretation is first
Effective date and transition applied; or
prospectively from the beginning of a prior
The amendment is effective for annual periods reporting period presented as comparative
beginning on or after 1 January 2019. Earlier information.
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 5ISAK 34 Uncertainty over Income Tax Treatments
Early adoption is permitted
Transition provision: retrospective
Issue uncertainty in its income tax accounting in the period in
This interpretation clarifies how the recognition and which that determination is made (for example, by
measurement requirements of PSAK 46 'Income taxes', recognising an additional tax liability or applying a
are applied where there is uncertainty over income tax higher tax rate).
treatments.
How is the effect of uncertainty recognised?
The entity should measure the impact of the uncertainty
Impact
using the method that best predicts the resolution of the
uncertainty (that is, the entity should use either the
When does the Interpretation apply?
most likely amount method or the expected value
ISAK 34 explains how to recognise and measure
method when measuring an uncertainty).
deferred and current income tax assets and liabilities
where there is uncertainty over a tax treatment.
The most likely amount method might be appropriate if
the possible outcomes are binary or are concentrated
An uncertain tax treatment is any tax treatment applied
on one value. The expected value method might be
by an entity where there is uncertainty over whether
appropriate if there is a range of possible outcomes
that treatment will be accepted by the tax authority. For
that are neither binary nor concentrated on one value.
example, a decision to claim a deduction for a specific
Some uncertainties affect both current and deferred
expense or not to include a specific item of income in a
taxes (for example, an uncertainty over the year in
tax return is an uncertain tax treatment if its
which an expense is deductible). ISAK 34 requires
acceptability is uncertain under tax law. ISAK 34
consistent judgements and estimates to be applied to
applies to all aspects of income tax accounting where
current and deferred taxes.
there is an uncertainty regarding the treatment of an
item, including taxable profit or loss, the tax bases of
What about changes in circumstances?
assets and liabilities, tax losses and credits and tax
The judgements and estimates made to recognise and
rates.
measure the effect of uncertain tax treatments are
reassessed whenever circumstances change or when
What is the unit of account?
there is new information that affects those judgements.
Each uncertain tax treatment is considered separately
New information might include actions by the tax
or together as a group, depending on which approach
authority, evidence that the tax authority has taken a
better predicts the resolution of the uncertainty. The
particular position in connection with a similar item, or
factors that an entity might consider to make this
the expiry of the tax authority’s right to examine a
determination include:
particular tax treatment. ISAK 34 states specifically that
1. how it prepares and supports the tax treatment; and
the absence of any comment from the tax authority is
2. the approach that it expects the tax authority i.e. take
unlikely to be, in isolation, a change in circumstances
during an examination.
or new information that would lead to a change in
estimate.
What should an entity assume about the examination of
tax treatments by taxation authorities?
What about the disclosures?
An entity is required to assume that a tax authority with
There are no new disclosure requirements in ISAK 34.
the right to examine and challenge tax treatments will
However, entities are reminded of the need to disclose,
examine those treatments and have full knowledge of
in accordance with PSAK 1, the judgements and
all related information. Detection risk is not considered
estimates made in determining the uncertain tax
in the recognition and measurement of uncertain tax
treatment.
treatments.
When should an entity account for any uncertain tax
Effective date and transition
treatments? The Interpretation is effective for annual periods
If an entity concludes that it is probable that the tax beginning on or after 1 January 2019. An entity can, on
authority will accept an uncertain tax treatment that has initial application, elect to apply this Interpretation
been taken or is expected to be taken on a tax return, it either:
should determine its accounting for income taxes 1. retrospectively applying PSAK 25, if possible without
consistently with that tax treatment. If an entity the use of hindsight; or
concludes that it is not probable that the treatment will 2. retrospectively, with the cumulative effect of initially
be accepted, it should reflect the effect of the applying the Interpretation recognised at the date of
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 6initial application as an adjustment to the opening determine the unit of account and measure the
balance of retained earnings (or other component of consequences of tax uncertainties. The Interpretation
equity, as appropriate). also explains when to reconsider the accounting for a
tax uncertainty, and it states specifically that the
Insight absence of comment from the tax authority is unlikely,
ISAK 34 provides a framework to consider, recognise in isolation, to trigger a reassessment.
and measure the accounting impact of tax
uncertainties. The Interpretation provides specific Most entities will have developed a model to account
guidance in several areas where previously PSAK 46 for tax uncertainties in the absence of specific guidance
was silent. For example, the Interpretation specifies in PSAK 46. These models might, in some
how to determine the unit of account and the circumstances, be inconsistent with ISAK 34 and the
recognition and measurement guidance to be applied impact on tax accounting could be material.
to that unit. There is no specific guidance in PSAK 46, Management should assess the existing models
and entities today might be using different models to against the specific guidance in the Interpretation and
consider the impact on income tax accounting.
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 7Amended Standards
Plan amendment, curtailment or settlement –
Amendments to PSAK 24, ‘Employee Benefits’
Early adoption is permitted
Transition provision: prospective
Issue
This amendment requires an entity:
to use updated assumptions to determine current service cost and net interest for the remainder of the period
after a plan amendment, curtailment or settlement; and
to recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a
surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.
Impact
Changes in the terms or membership of a defined benefit plan might result in a plan amendment or a curtailment or
settlement. PSAK 24 requires an entity to determine the amount of any past service cost, or gain or loss on
settlement, by remeasuring the net defined benefit liability before and after the amendment, using current
assumptions and the fair value of plan assets at the time of the amendment.
Current service cost and net interest are usually calculated using assumptions determined at the beginning of the
period. However, if the net defined benefit liability is remeasured to determine past service cost, or the gain or loss
on curtailment or settlement, current service cost and net interest for the remainder of the period are remeasured
using the same assumptions and the same fair value of plan assets. This will change the amounts that would
otherwise have been charged to profit or loss in the period after the plan amendment, and it might mean that the
net defined benefit liability is remeasured more often.
A plan amendment, curtailment or settlement might reduce or eliminate a surplus, which could change the effect of
the asset ceiling. Past service cost, or a gain or loss on settlement, is calculated in accordance with PSAK 24, and
it is recognised in profit or loss. This reflects the substance of the transaction, because a surplus that has been
used to settle an obligation or provide additional benefits is recovered. The impact on the asset ceiling is
recognised in other comprehensive income, and it is not reclassified to profit or loss. The impact of the
amendments is to confirm that these effects are not offset.
Who is affected
The amendments will affect any entity that changes the terms or the membership of a defined benefit plan such
that there is past service cost or a gain or loss on settlement.
The amendments are applied prospectively to plan amendments, settlements or curtailments that occur after the
beginning of the first annual reporting period beginning on or after 1 January 2019.
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 8Annual Improvements 2018
As part of the continuing IFRS convergence process, the following table provides summary
information on the annual improvements of PSAKs that are effective for annual periods beginning
on or after 1 January 2019. The annual improvements of PSAK are basically a set of narrow-
scope amendments that provide clarification so that there are no significant changes to existing
principles or new principles.
Title Key Requirements
PSAK 22, ‘Business The amendments clarify that obtaining control of a business that is a
Combination’ joint operation, is a business combination achieved in stages. The
acquirer should re-measure its previously held interest in the joint
operation at fair value at the acquisition date.
PSAK 26, ‘Borrowing The amendments clarify that if a specific borrowing remains
Costs’ outstanding after the related qualifying asset is ready for its intended
use or sale, it becomes part of general borrowings. This amendment
applies prospectively for borrowing costs incurred on or after its
effective date.
PSAK 46, ‘Income The amendment clarifies that the income tax consequences of
Taxes’ dividends on financial instruments classified as equity should be
recognised according to where the past transactions or events that
generated distributable profits were recognised. These requirements
apply to all income tax consequences of dividends.
Previously, it was unclear whether the income tax consequences of
dividends should be recognised in profit or loss, or in equity, and the
scope of the existing guidance was ambiguous.
PSAK 66, ‘Joint The amendments clarify that the party obtaining joint control of a
Arrangements’ business that is a joint operation should not re-measure its previously
held interest in the joint operation.
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 9Appendix – Forthcoming
Requirements
(as approved by DSAK-IAI or DSAS-IAI at the date of this publication)
Title Key Requirements Effective Date
PSAK 71, ‘Financial This new standard provides new requirements on the 1 January 2020
Instruments’ classification and measurement of financial assets and
liabilities. It also includes an expected credit losses model Early adoption is
that replaces the incurred loss impairment model used permitted.
currently and also new requirements for hedge accounting.
Consequential amendments to other standards, including
PSAK 55, ‘Financial Instruments’ are made.
PSAK 72, ‘Revenue from This new standard will affect most entities from all across 1 January 2020
Contracts with industries. The standard introduces the new paradigm to
Customers the revenue recognition accounting by introducing the five- Early adoption is
step model. This standard replaces several revenue permitted.
standards in IFAS.
PSAK 73, ‘Leases’ This new standard will require lessees to recognise a lease 1 January 2020
liability reflecting its future lease payments and a ‘right-of-
use asset’ for virtually all lease contracts. However, Early adoption is
optional exemptions for certain short-term leases and low- permitted.
value assets are available for lessees. This standard
replaces the current guidance in PSAK 30, ‘Leases’.
Prepayment features The amendment allows companies to measure particular 1 January 2020
with negative pre-payable financial assets with so-called negative
compensation compensation payments at amortised cost or at fair value Early adoption is
Amendment to PSAK 71 through other comprehensive income if a specified permitted.
condition is met, instead of at fair value through profit or
loss.
Applying PSAK 71 This amendment is a consequential revision to PSAK 62 1 January 2020
‘Financial Instruments’ due to the issuance of PSAK 71. The amended standard
to PSAK 62 ‘Insurance provides guidance for an entity that is issuing an insurance Early adoption is
Contracts’ contract (especially an insurance company) on how to permitted.
Amendment to PSAK 62 implement PSAK 71. There will be two approaches that
‘Insurance Contracts’ could be chosen by the reporting entity, which are the
temporary exemption from PSAK 71 and overlay
approaches.
Long-term interest in The amendment to PSAK 15 clarifies that companies 1 January 2020
associates and joint account for long-term interest in an associate or joint
ventures venture (to which the equity method is not applied) using Early adoption is
Amendments to PSAK 15 PSAK 71. permitted.
PSAK 112, ‘Accounting The standard regulates the accounting treatment for wakaf 1 January 2021
for Wakaf (Endowments)’ (endowments) from corporate donor to individual and
corporate recipient. Early adoption is
permitted.
Amendment to PSAK 1, The amendment allows the entities to use titles for the 1 January 2020
‘Presentation of statements other than those used in PSAK 1. For example,
Financial Statements’ an entity may use the title 'statement of comprehensive
income' instead of 'statement of profit or loss and other
comprehensive income'.
Annual Improvements This is clarifies some wording in the standard to align with 1 January 2020
2019 to PSAK 1, the intention in IAS 1.
‘Presentation of
Financial Statements’
ISAK 35, ‘Presentation of This interpretation provides an illustrative example of 1 January 2020
Non-Profit Oriented financial reporting by a non-profit oriented entity.
Entity Financial
Statements’
PPSAK 13, Revocation of This statement revokes the enactment of PSAK 45. 1 January 2020
PSAK 45 Financial
Reporting for Non-profit
Organisations
A Practical Guide to the New and Revised Indonesian Financial Accounting Standards for 2019 | 10Authors, contributors and reviewers Djohan Pinnarwan Helen Cuizon djohan.pinnarwan@id.pwc.com Helen.cuizon@id.pwc.com Dwi Jayanti Dariya Karasova Dwi.jayanti@id.pwc.com Dariya.m.karasova@id.pwc.com Arryu Amin Gayatri Permatasari Arryu.amin@id.pwc.com gayatri.permatasari@id.pwc.com Lie Yokebeth Martinus Budiman lie.yokebeth@id.pwc.com Martinus.budiman@id.pwc.com For professional accounting advice, please contact: Jumadi Anggana Jasmin Maranan Jumadi.anggana@id.pwc.com jasmin.m.maranan@id.pwc.com Irwan Lau Akuntina Novriani Irwan.lau@id.pwc.com akuntina.novriani@id.pwc.com Ponco Widagdo Elina Mihardja Ponco.widagdo@id.pwc.com Elina.mihardja@id.pwc.com Roymond Wong Roymond.wong@id.pwc.com PwC Indonesia Jakarta Surabaya WTC 3 Pakuwon Center Jl. Jend. Sudirman Kav. 29-31 Tunjungan Plaza 5, 22nd Floor, Unit 05 Jakarta 12920 - INDONESIA Jl. Embong Malang No. 1, 3, 5 T: +62 21 5212901 T: +62 31 9924579 F: +62 21 52905555 / 52905050 Surabaya 60261 - INDONESIA www.pwc.com/id www.pwc.com/id © 2019 KAP Tanudiredja, Wibisana, Rintis & Rekan. All rights reserved. PwC refers to the Indonesia member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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